Key issues: Proxy access

Proxy access allows defined shareholders to nominate their own director candidates against those nominated by the company. The original proxy access rule under the Dodd-Frank Act (Rule 14a-11) was struck down by a federal court in 2011. Subsequently, the SEC lifted its suspension of Rule 14a-8, which allowed for proxy access on a company-by-company basis (also known as “private ordering”).

Shareholders currently can gain access to the proxy statement to nominate their own directors through a two-phase process. A shareholder with at least $2,000 in company stock held for at least one year to submit a proposal to amend the company bylaws to allow for direct proxy access. If approved, shareholders can submit director slates to be included in the proxy statement the following year.

During the 2014 proxy season, proxy access proposals requesting that companies adopt the “three and three” approach received dramatically higher levels of support than proxy access proposals setting other parameters. The approach provides access to the director slate for shareholder nominees who own at least 3% of outstanding shares for at least three years.

What directors should do:

Review company bylaws and consider the need for more robust advance notice mechanisms and conditions for shareholder nominations.

Identify any internal issues relating to director nominations or board composition, including reviewing the company’s nominating committee charter, bylaws relating to director qualifications, rules for the conduct of shareholder meetings, and the policy on director age and term limits.

Ensure that there is regular shareholder engagement to identify and address external concerns related to director nominations.